June options will expire on Friday and the week after the June expiration is typically ugly. For 22 of the last 25 June expirations the Dow has declined an average of -1.1% in the week that followed. Will this be the exception to the rule?
The markets were volatile after the Fed meeting and press conference but not nearly as exciting as many had predicted. The Dow had rallied more than 200 points on each of the prior two press conferences with Janet Yellen. That did not happen today even though she was possibly more dovish than normal. The lack of a mention of a potential hike in September left analysts wondering if the economy was weaker than previously thought and whether Yellen was going to cave into the pleas from the IMF and World Bank not to raise rates in 2015.
Treasury yields declined after the meeting when there was no mention of timing regarding the first rate hike. The dollar also plunged to a five week low.
Greece continues to be a problem for the market with the Greek central bank warning that no deal this week could cause a debt default and an exit from the eurozone. The bank warned politicians to do a deal or face an "uncontrollable crisis." Greek citizens rallied outside the parliament building telling the government to be strong and continue standing up to the Troika.
Analysts are now placing the odds of a Greek default in the 85% range and exit from the eurozone in the 50% range.
I am covering all of these headlines because they have the potential to cause significant volatility along with the triple witching over the next several days. We have a lot of June positions expiring on Friday and I would like to get to the Friday close without a major triple digit move.
The indexes closed slightly positive today but well off their highs. Resistance held on the post Fed volatility spike. That should mean it will hold on any late week rebound that has even less headline support. "Should" is the key work in that sentence. The big cap indexes closed right in the middle of their recent range so no real clues as to market direction.
I did add a couple of new positions with strikes as far out of the money as possible. S&P futures are down -3.50 as I write this but that could change in an instant as we saw on Tuesday morning when they rebounded from -14 to flat over just a couple hours before the open.
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Current Position Changes
Stop Loss Updates
Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.
FSLR - First Solar (Stopped)
First Solar spiked nearly $4 on Monday to knock us out of the short call at $62.65. Fortunately, the June option had already shrunk to only 5 cents so we still exited profitably.
Closed short June $60 Call, entry 1.00, exit .05, +.95 gain.
Retain the expiring long $62.50 call just in case lightning strikes between now and Friday's close.
APC - Anadarko Petroleum (Bear Call Spread)
Anadarko shares are fading along with the expectations for oil prices. Once past the July 4th weekend oil prices tend to fade as demand for gasoline declines. The July 4th weekend is the peak of prices for the summer as long as there are no hurricanes in the Gulf. Analysts are expecting crude prices to bleed back to below $50 in late summer.
Earnings July 28th.
Sell short July $87.50 call, currently .70, stop loss $85.55
Buy long July $92.50 call, currently .18, no stop loss.
Net credit 52 cents.
TSO - Tesoro Corp (Bear Call Spread)
Tesoro is a U.S. refiner and they are facing the same problem as Anadarko. As oil prices decline after July 4th their margins on refined products also decline. The demand for gasoline slows as the summer starts to wind down and that should weigh on the stock price.
Earnings July 29th.
Sell short July $90 call, currently .69. stop loss
Buy long July $95 call, currently .35, no stop loss
Net credit 34 cents.
These were potential plays I did not use today. If you are looking for something else to play you can start here. These are not official recommendations.
Bear Call Spreads
Symbol Strikes Credit Earnings
DVN - 65.00/67.50 - .31 - August 4th.
PTCT - 55.00/60.00 - .35 - August 6th.
WDAY - 85.00/90.00 - .50 - August 27th.
Bull Put Spreads
Symbol Strikes Credit Earnings
HCA - 77.00/72.00 - .60 - July 28th.
CYBR - 65.00/60.00 - .65 - August 5th.
CYBR - 65.00/55.00 - 1.15 - August 5th
AMBA - 100.00/90.00 - .50 - September 3rd.
PANW - 165.00/170.00 - .65 - September 8th.
PANW - 155.00/165.00 - .55 - September 8th.
Existing Play Recommendations
Links to original play recommendation
WYNN - Wynn Resorts (Bear Call Spread)
FSLR - First Solar (Bear Call Spread)
DDD - 3D Systems (Bear Call Spread)
GPRO - GoPro (Bull Put Spread)
TRGP - Targa Resources (Bear Call Spread)
SWIR - Sierra Wireless (Bear Call Spread)
CLDX - CellDex (Bull Put Spread)
GMCR - Green Mountain Coffee (Bear Call Spread)
HLF - Herbalife (Bull Put Spread)
Z - Zillow (Bear Call Spread)
NSC - Norfolk Southern (Bear Call Spread)
Prices Quoted in Newsletter
At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.
The prices quoted in the newsletter are the end of day prices in most cases.
When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.
For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.
For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.
All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.